How to choose a workplace pension provider

workplace pension

Having a workplace pension is an essential for your employees.

Not only will it build up their pot for retirement, but it will give them greater financial wellbeing in the short-term which can improve productivity.

Finding one, on the other hand, can prove challenging. Since auto-enrolment was introduced, more and more providers have been getting on the opportunity and offering workplace pensions of their own.

In this article, we’ll take you through some of the legalities and show you how to find the best workplace pension provider for you, complete with a list of workplace pension scheme providers to give you some steer.

Do small businesses have to provide a pension?

By law, yes. Under the Pensions Act 2008, all employers must put staff on a pension scheme and contribute to it. Businesses employing for the first time need to comply too.

Any employee over the age of 22 who earns over £10,000 a year, £833 a month or £192 a week must be placed on an auto-enrolment. This still applies if you only have one eligible employee. If you don’t set one up, you’ll incur fines from The Pensions Regulator and you may have to backdate payments from when your employee started working for you.

If you’re in any doubt, The Pension Regulator has an online tool to help you figure out your duties.

What is auto-enrolment?

Auto-enrolment is a pension scheme required by the government where employees are automatically put on a scheme and a certain percentage of an employee’s wage is put in their pension scheme, with an additional percentage being put in by you, the employer. At the time of writing, contributions must total at least eight per cent of qualifying earnings and at least three per cent of that needs to be paid by the employer.

There are a few types of pension scheme, so here’s a quick jargon buster.

Defined Contribution: Sometimes known as money purchase schemes, these are based on employers and employees agreeing on defined percentage contributions into a pension pot. The contributions are then put into investments by your pension provider. It’s the most commonly offered scheme.  

Defined Benefit: These are based on a member’s salary and the period of time that they’ve worked with the employer. Unlike DCs, the amount of income produced isn’t based on market performance.

Group Personal Pensions: GPPs are run by a pension provider. Employees will join said provider’s pension scheme. The employer gathers member data and then passes it on to the provider. Members build up their pot through employer and employee contributions and the funds are distributed through a combination of stocks, shares and other investments.

Master Trust: This is a type of Defined Contribution run by a board of independent trustees to provide pensions for a number of unconnected employers. Choosing a master trust means that you don’t have to decide on who will run the scheme or draw up individual rules. That makes it easier to administrate and you’ll still be able to make decisions on contributions, where the money in the scheme is invested and what benefits your employees get.

Self-Invested Personal Pension (SIPP): A SIPP is a do-it-yourself pension which lets your employees decide how their contributions are going to be invested. It’s better for more savvy staff members who already know the market and have larger quantities to invest. When researching, you’re more likely to see is a Group SIPP, which is a collection of individual SIPPS that are grouped together.

How much does it cost my business to match employee contributions?

It depends on how much your employee pays in. Matching your employee contributions does act as an incentive for them to pay in more.

Employer contributions count as an allowable business expense too – so you can deduct them from your taxable profits to reduce your corporation tax bill. There’s no need to pay National Insurance on pension contributions either.

Choosing a workplace pension provider

First of all, it’s important that you don’t rush this process and find something that’s suitable. “As they’re starting to do their incorporation, setting up the business, it should be part of their plans at that point,” David Pye, client consulting director at Broadstone told Small Business. “We often get contact from a business that has got an employee starting next week, and they need a pension scheme legally. But obviously, it’s a rush. It’s not the nice, comfortable [period] where you can make a rational decision.”

“When looking for a pension provider for your workplace scheme, it’s very important to assess exactly what is included as part of the proposition on offer,” Jonathan Sidlin, managing director of HSC Financial Advisers told Small Business.

“You should make sure that the pension provider has access to a wide fund range and can offer other investment options. Many providers have competitive schemes in place specifically for small business owners and we find that particularly useful for our clients,” he added.

So, what should you be looking out for?

Eligibility

It may not be very clear at a glance, but chat with the provider about eligibility. Some of the larger firms may have restrictions on the size of business they allow depending on employee numbers. “A number of the major providers will actually have a five employee minimum,” said Pye. “That doesn’t mean to say that five people need to be in the scheme, but there has to be five employees.”

He also said that if you have fewer than five employees, you would tend to look towards the Master Trust providers: “Master Trust providers tend to be Smart Pensions, The People’s Pension, NEST, to name three that are very common for very small businesses to start with.”

Fees

As a lot of pension plans are bespoke depending on the needs of the business, it’s often difficult to get a sense of costs upfront. There may be a tiered charging structure depending on the assets being managed. Sidlin also said that you need to get a sense of annual management charges and total expense ratio (the measure of the total cost of funds to the investor) on any funds available in the scheme.

“Most of the charges will come out from the membership, particularly with very small schemes,” said Pye. “Some providers will set up an implementation charge, usually £300- £500, something like that, to put something in place.”

There could be charges if large sums of money are being held. “Some of our clients have over £100m in their funds, and that money needs some governance structure around it, though it’s not legally the employer’s responsibility. So you’d have an annual review put in place. Those sort of things can be put in place around for £2000 a year,” said Pye.

Investment opportunities

Think about the nature of the business and the staff you want to attract, now and in the future. If it’s within finance or tech industries, for example, employees may be grabbed by more compelling investment opportunities in their pension scheme. Equally, if you’re an ethical brand then a pension provider which puts contributions into eco-friendly investments or allows employees to choose more ethical investments, that could give you an edge over your rival firms. Take notice of the returns over, say, five years as well.

The National Employment Savings Trust (NEST) is a worthy starting point if you just want to make sure you’re compliant, so ultimately could be a simpler and better option for you.

Communications

Check out what practical information is provided for you and for employees. This could be elements like written or video guides, interactive tools or a financial wellbeing hub. It’s also worth asking how the provider communicates changes and important correspondence with you and your staff.

ESG credentials

More and more workplace pension providers are focusing on their environmental social governance (ESG) as more investors express an interest. This could be achieved through actions like carbon offsets or through shareholder power.

Changing workplace pension provider

You may very well be clued-up about all of this and just looking to change your provider. In that case, give the switchover process three months. It could probably be done more quickly, but just to be on the more comfortable side.

The snag comes with moving your employees’ funds across. “In terms of picking up the funds that have already been invested, that might have been invested for two or three years or longer, the employer doesn’t have the power to do that, it has to be an employee choice,” said Pye. “Ideally, you would help the employees with that. It’s not a difficult process, but they need to be made aware.”

Who is the best workplace pension provider?

When you compare workplace pension providers, there is a lot to consider. Start with an online search to get a sense of what’s out there. It’s best not to be too reliant on it though as you could miss out on a company offering a more suitable package further down the search engine rankings. With this comes the peril of too much choice. “There is a danger of a three-man business that’s been been operating for six months getting a full market review and probably 60-70 per cent of the market wouldn’t entertain them because they’re too small.”

If you’ve got any co-directors or consultants, go over it with them and see what they think. It’s also worth seeking out a financial advisor if you can.

List of workplace pension providers

To help you out in the meantime, here are some of the main workplace pension providers and a table of key features.

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Aegon

Types of pension: Master Trust, Direct Contribution Contracts

Fees: Up to 0.60 per cent annual percentage charge based on fund value.

Aegon is one of the largest pension providers in the UK, supporting over 10,000 employer schemes and managing savings of over 920,000 members. It says it provides a full range of savings options ‘that can meet every employer’s requirements, whatever the size, complexity or future plans.’

Features

  • Financial wellbeing hub for employers
  • SmartEnrol supports the enrolment and re-enrolment of eligible employees into your pension scheme so your employees don’t have to
  • Integration with HR and payroll systems

Aviva

Types of pension: Master Trust

Fees: Dependent on scheme. Employees also pay a fund charge between 0.2 per cent and 0.75 per cent per year.

Aviva has a selection of online guides to help you sort out your employees pension scheme without having to talk to a customer services team. A minimum number of contributing employees may be required to sign up with Aviva.

Features

  • No set-up fees
  • Easy to set up
  • Free online management dashboard
  • 200 investment fund options

Cushon Master Trust (formerly Salvus Master Trust)

Types of pension: Master Trust

Fees: Standard annual management charge is 0.55 per cent for companies with ten or more employees and 0.65 per cent for companies with fewer than ten employees.

Hailing itself as the world’s first net zero pension, Cushon promises a true investment in your employees’ future as well as a jargon-free experience so that they can understand what they’re getting. However, there are only 90 investment options, fewer than some of the other providers.

Features

  • Integrates with your existing benefits platform
  • Support to encourage employees to reach savings and retirement goals
  • App-enabled ESG voting allows employees to have their say in how organisations they invest in conduct themselves
  • Help for employees who are hindered by the Lifetime Allowance, Money Purchase Annual Allowance or the Tapered Annual Allowance

Fidelity

Types of pension: Master Trust and Group Personal Pensions

Fees: Based on client needs

Flexibility is the name of the game with Fidelity. Funds from Fidelity and other leading fund managers across a variety of management styles, asset classes and risk profiles. Though Fidelity has no eligibility criteria, it said that its focus tends to be on larger corporate clients.

Features

  • Flexible retirement options
  • Investment-only solutions
  • Workforce management capabilities
  • In-scheme flexible options, including regular income drawdown

Hargreaves Lansdown

Types of pension: Group SIPP

Fees: Not stated

This is definitely a pension for employees who are interested in investment opportunities. The Group SIPP is similar to the Group Personal Pension in that payments are invested in a low-cost investment fund. However, HL experts help employees to make their own investing choices by providing investment ideas and ready-made portfolios. The scheme is open to most small businesses, but it’s typically businesses with 50+ that use it.

Features

  • Thousands of funds and investment options
  • Multiple ways to apply
  • Flexible retirement fund options for employees

Legal & General

Types of pension: Master Trust, contract and trust-based pensions

Fees: Not stated

Legal & General have multiple savings options and you can opt to do a salary sacrifice arrangement if it’s more suitable for employees. There’s a big focus on employees with a financial wellbeing hub as well as flexibility at retirement with the choice of cash lump sum, a flexible income, annuity and transferring pension benefits.

Features

  • Wide range of investments including standard, bespoke and investment-only options
  • Bespoke enrolment service
  • Retirement planning tool
  • Budgeting tool
  • Online scheme management system

National Employment Savings Trust (NEST)

Types of pension: Master Trust

Fees: Annual management charge of 0.3 per cent of total value of member’s fund and a contribution charge of 1.8 per cent on each new contribution made into a member’s pension scheme

The National Employment Savings Trust (NEST) is set up by the government and is a popular starting point for most businesses, especially microbusinesses. It helps firms meet basic compliance but doesn’t come with the investment options that some of the other providers do. Its low fees make it one of the cheapest workplace pension providers.

Features

  • No shareholders or owners
  • Low fees
  • One of the few schemes open to all businesses

The People’s Pension

Types of pension:Master Trust

Fees: Annual charge of £2.50 – equivalent to 21p a month, management charge of 0.5 per cent of the value of a member’s pension pot each year, rebate on the management charge, giving back between 0.1 per cent on savings over £3,000 and 0.3 per cent on savings over £50,000.

One-off set-up fee of £500 + VAT for employers – this can be reduced to £300 if you go through a business adviser. Employees will be subject to an annual 0.5 per cent management charge.

The People’s Pension, as the name suggests, aims to be straightforward and accessible for the people. It has the reduced focus on shareholders that NEST has, with many more investment options.

Features

  • Support to make sure your small business is compliant with auto-enrolment
  • The default fund, which the vast majority of members are invested into, is MSCI AA rated, making it an ESG leader
  • Compatible with leading software providers
  • All new contributions go into net zero investments

Royal London

Types of pension: Group Personal Pensions

Fees: Not stated

Royal London can tailor its pension offering to meet the needs of your business. There’s flexibility in retirement and contributions for employees. They can move to another plan that gives them the flexibility to take a regular income when they need it through income drawdown. They can also do contributions through salary exchange, where your employees agree to exchange part of their salary, bonus or redundancy package for an increased employer contribution package.

Note that it’s only sold through financial advisers so will likely be more costly upfront.

Features

  • Training and personal support is provided
  • No charge for transferring from another provider
  • Profitshare – Royal London aim to share profits to scheme holders when the firm is doing well
  • Create your own branded employee engagement hub
  • Receive scheme governance reports to show you how engaged your employees are

Scottish Widows

Types of pension: Group Personal Pensions

Fees: Average 0.46 per cent charge per year (2020)

Scottish Widows is working to integrate ESG considerations into their pension portfolios as well as giving you ongoing support throughout the time of your pension plan.

Features

  • Free digital pension transfer service for employees
  • Wide range of investment options
  • Tailored bulk annuity solutions, i.e. an insurance policy that is purchased by pension scheme trustees to better secure members’ benefits

Smart Pension

Types of pension: Master Trust

Fees: Monthly account charge of £15 + VAT. No charge if you pay contributions by direct debit, £30 a month if you pay by BACS. Members whose employers have signed up directly have an annual management charge of 0.30 per cent and a monthly fee of £1.25

Smart Pension prides itself on being a digital first option which makes it easier for employers to run with its automated ongoing processes. It’s also ISO27001-certified meaning that data is safe and secure.

Features

  • 70 per cent of default investment strategy invested into sustainable investment funds
  • Payroll integration
  • Set up account within minutes
  • Rewards which help employees save at major retailers

Standard Life

Types of pension: Master Trust, Group Pension Plans, Group SIPPs

Fees: Not supplied

Big player Standard Life provides a lot of guidance on auto-enrolment for those that are new to it. You’ve also got the option to switch if you’re already with another provider. They plan to make things as easy as possible for your employees, giving them retirement planning support and assistance when their retirement comes around.

Features

  • In-scheme drawdown scheme for employees
  • Competitive annual management fees
  • Annual pension benefit statements for employees
  • Online administration hub

True Potential

Types of pension: Master Trust

Fees: Fund cost is 0.31 per cent plus a platform fee of 0.40 per cent, totalling of 0.71 per cent

True Potential says that it’s auto-enrolment on auto pilot. It can take care of lots of different elements for you including communications with employees, managing contributions and enrolling eligible workers.

Features

  • Payroll integration
  • Employees can invest in exclusive True Potential portfolios
  • Easy to transfer from NEST
  • Offers range of risk-rated investment funds 

I still can’t decide on a workplace pension provider – where can I go for further advice?

It’s a complex and important decision to make so you should take the time to ensure it’s right. Have a word with an independent financial adviser (IFA). You can find them through unbiased.co.uk and you can edit your preferences to find one who deals with pensions specifically.

Read more about workplace pensions:

Workplace pensions and keeping staff auto enrolled

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